Enviromental appraisal and its importance


A case of cellular phones

The Government of India, which has been deregulating the telecom sector for the past few years, now opened up the cell phone business a little more and allowed fixed line (basic) service providers (FSP) to offer mobile service in a limited manner (within a given geographical area) In simple terms, this meant that a fixed phone could function as a mobile phone, within a radius of approximately 55 km. Allowing FSP to offer limited mobility meant the instant entry of a third player into the business in any city/circle. One of the two public sector telecom corporations, Mahanagar Telephone Nigam Ltd (MTNL) and Bharat Sanchar Nigam Ltd (BSNL) was to take the place as the third players, the former in Delhi and Mumbai, and the latter in rest of India. In addition, the government decided to extent cellular license to a fourth player in any given circle. Instantly, it was a big confusion for existing players how to cope up with more competition.

A Destabilization for Existing Cellular Players:

Obviously, the moves meant new competition in the business and a change in the rules of the game to the disadvantage of the existing cellular operators (all in the private sector). It upset the cozy duopoly of existing cellular operators. More importantly, in the immediate run, it threw their bottom line forecasts into complete disarray as the government announced that the basic rate to be reckoned by the new competitors would be only Rs. 1.20 per three minutes. The de-stabilization became clearer when the basic service operator MTNL, which had become the third cellular license in Delhi and Mumbai, announced its entry and notified its tariffs. Its tariffs were far cheaper than those of ongoing cellular players. It was competition let loose all the way.

Existing cellular players had clearly been pushed into a corner. They were also facing dilemma—to slash or not to slash tariffs?
Slashing tariffs would land them into trouble. It was impossible for them to go down to Rs. 1.20 per three minutes; it would render them unviable.

Not slashing the tariffs would also render them unviable, as the market would then slip out of their hands. In any case, investors and lenders would question the viability of the business, if tariffs were not slashed and matched with the new competitor.

Foreign partners/investors in various cellular ventures in India were reconsidering their Indian operations and investment strategies in view of the above changes in tariffs and business environment.

Local players in a jam; started firefighting , trying to ensure continued capital flow and trying to explain to foreign and domestic lenders the viability of cellular project.

BPL, which had emerged as the highest bidder for RPG, Chennai circle, now wants to lower its bid and renegotiate the valuations.

Cellular operators in a fix; feel caught between the devil and the deep sea. To slash or not to slash the call charges, if so how much. Birla AT&T declared that their business model could now undergo a substantial change on account of various new challenges coming up in the cellular phone business.

Marketing Hinges on Proper Environment Appraisal:

The crux of all these discussions is that an enterprise cannot do its marketing planning, or for that matter its business planning in an effective manner in the absence of a proper appraisal of the environment. This case highlights this basic reality. It demonstrated that the Indian cell phone players could have handled their environmental appraisal better. It also showed if they had done so, they might have been spared the travails that they had to subsequently undergo.

The Points shows the aggressive stance taken by the new competitor, MTNL, in pricing its cellular services.

MTNL got 1,100 Mobile Applications on the very first day itself. MTNL, which provides fixed line services in Mumbai and Delhi, started the bookings for its cellular service in January 2001.
The Tariffs-
Rs 2.80 per minute for outgoing calls
Rs. 1.50 for incoming calls.

Existing cellular operators in the private sector were then charging Rs 4 for one-minute call in New Delhi. MTNL has a network capacity to sign up 100,000 subscribers each in New Delhi and Mumbai.

Once it came close to 100,000 customers, it planned to increase its network capacity by another 100,000. Clearly, MTNL’s entry injected new competition, a no-holds barred competition, into business.

Poor Environmental Appraisal Pushes the Cellular Players into Several Difficulties

The cellular players now realized that their business plans had gone haywire. It was also slowly dawning on them that the real problem was their wrong assumptions regarding the environment. Whatever they had assumed about the government’s plans had gone wrong. For the government had now taken several steps, each of which went against their assumptions / interests. The government had opened up the two metros, Mumbai and Delhi, and that brought in MTNL. It had opened up the other circles as well, the whole of India, for that matter. The new entrants were not limited to the two public sector telecom corporations, MTNL and BSNL. It had brought in many private players too. For example, it permitted private players like Hughes, and Bharti to provide limited mobile services or wireless-in-local –loop (WiLL) in Maharashtra and Madhya Pradesh, respectively.

The conclusion is clear that the poor environmental appraisal pushed the Cellular Players into several difficulties. Earlier no body or none of the existing cellular players expected the government sponsored telecom companies like MTNL and BSNL will be so aggressive to make them run or their money. This case teaches a lesson that a very intelligent and comprehensive anticipation of environmental changes are required by any company or group of companies whatever may be the products or services.